Have you ever overspent on a major purchase and regretted it later? If you are looking to buy a house or have just purchased one, it’s important to realize that houses are listed higher than what the sellers expect to receive. Many listing agents do this on purpose in anticipation of negotiation. Failing to negotiate will cost you for many years to come. The most skilled negotiator can get everything that s/he wants and make the seller feel like they won the battle.
I Learned the Hard Way
I haven’t always been an expert negotiator when it comes to major purchases. I learned the hard way when I was the seller. I was approaching my graduation from college. My wife (fiance at the time) and I were going to get married two months after graduation. We were also getting ready to leave the country for a year. We didn’t need either of our cars so we decided to sell mine before leaving school. The first mistake I made as a seller was put a short time limit on selling my car. The biggest blunder, however, came much later when the first person came to look at the car.
I had originally listed it for $4000, but didn’t hear anything for 2 weeks. I bumped the price down to $3700, expecting to get more calls. Instead, there was nothing but the sound of crickets. No one called. As a last resort, I dropped the price all the way down to $3000 with about a week before graduation. The car was worth somewhere around $3500, but I had to get rid of it in the next week.
This did the trick. I got a few phone calls and set up the first appointment. When the guy came, he test drove the car and started negotiating with me. He offered me $2500. I wouldn’t accept this. Given his first offer, I then crafted my counter offer at $2750. After a few minutes, he “reluctantly” accepted. I thought I had won the negotiating battle until hours later when I realized how much of a deal he received. He purchased a car for nearly $1000 less than market value.
While I felt like an idiot, this one mistake taught me a lot about bartering on major purchases. One of the first steps in saving money on that next home purchase is to ask for more than you expect to receive. This may sound crazy, but this is the best way to enter into negotiation. If you ask for what you expect the seller to accept without any negotiation, you have basically handed over free money to them.
Just think about the guy who purchased my car. He started lower than what he expected me to accept and this won him nearly 10% of the asking price. The best part about starting low is that when the seller makes a counter offer, it makes them feel like they have won the negotiation. I certainly felt like I won in selling my car because I got him to come up $250 from his original offer.
Get Creative with Your Offer Letter
The only downside to this approach is that sometimes the initial offer will get rejected with no response. Certain sellers will see your low offer and refuse to counter because you have offended them. This may happen from time to time, but it shouldn’t force you into paying more for the home. The way to get around this is not to offer more money, but to be creative in writing up the offer. Instead of having one item to negotiate, you might as well put more pieces into play.
For example, let’s say that you find a house that is listed for $90,000. If you are willing to pay$75,000, one option would be to offer $60,000 with the hope that they would counter to split the difference. Offering this low of an amount would almost certainly offend the seller. Instead, why not offer $70,000 and ask the seller to pay $5,000 of closing costs. While they may not accept this initial offer, it is closer to their asking price and provides you with things to give up. If they counter with a higher price, you can always present them with another offer and remove the request to pay for closing costs. This not only saves you money, but also leaves the seller feeling like they won the battle.
This is only the beginning. Being creative with writing up an offer on a house starts here. There are many other ways to give yourself the upper hand. Here are other things that you may want to include when writing that offer:
- Major Appliances
- Maintenance Fees (for a condo)
- Personal items (lawn mower, gardening tools, etc.)
- Certain repairs to be made
You may not care about the lawn mower or washer and dryer, but they are great pieces to give up in later rounds of negotiation in order to convince the seller that they are winning. Next time you want to make an offer on, try to come up with ways to give yourself the advantage in negotiating.
Have you ever negotiated a better price? What are some negotiating tactics you have used to save money on big purchases?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.